Justia Bankruptcy Opinion Summaries

Glenview, a Glasgow, Kentucky nursing home, jointly owned by Bush and Howlett for over 30 years, filed a voluntary chapter 11 bankruptcy petition. The Official Creditors Committee was formed and filed an application to retain DBG, with a declaration from DGB's managing partner, disclosing that DBG had previously represented Howlett in estate planning matters, unrelated to the Chapter 11 case, that the representation concluded in 2017, and that the professionals who represented Howlett would not represent the Committee. Glenview filed an objection, although Howlett did not, asserting that DBG assisted Glenview and Howlett with the preparation of a buy-sell agreement for Glenview and all its assets, attaching an invoice from DBG for a period in 2016. DBG asserted that no buy-sell agreement was consummated, and that the representation related only to estate planning. The bankruptcy court heard arguments but did not conduct an evidentiary hearing, then denied the Committee’s application to employ DBG.The Sixth Circuit Bankruptcy Appellate Panel vacated, finding that the court abused its discretion under 11 U.S.C. 1103. State and federal courts jealously guard the attorney-client relationship and that solicitude extends to a committee’s choice of counsel in bankruptcy. View "In re Glenview Health Care Facility, Inc." on Justia Law

After Tennial’s mortgage company foreclosed on her home, she filed a Chapter 13 bankruptcy petition. Her petition triggered an automatic stay of any further action against her home, allowing her to continue living there, 11 U.S.C. 362. The next year, REI bought Tennial’s home from the mortgage company and, on REI’s motion, the bankruptcy court terminated the stay on September 12, 2019. Tennial’s attorney received electronic notice of the order the same day, and the court mailed a copy to Tennial by first class mail on September 14.Under Rule 8002(a)(1) of the Federal Rules of Bankruptcy Procedure, Tennial had 14 days—through September 26—to appeal the order. Tennial filed her notice of appeal on October 9. At the bottom of her notice, she wrote, “I did not receive a copy of the order until September 26, 2019, via U.S. Postal Service.” The court dismissed, concluding that it lacked jurisdiction to review the order because Tennial waited too long to file the appeal and failed to move for an extension under Bankruptcy Rule 8002(d).The Sixth Circuit affirmed. While the deadline does not create a limitation on subject matter jurisdiction, Tennial missed the deadline and the deadline is mandatory. View "Tennial v. REI Nation, LLC" on Justia Law

Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) creates an insurance program to protect employees’ pension benefits. The Pension Benefit Guaranty Corporation (PBGC)—a wholly-owned corporation of the U.S. government—is charged with administering the pension-insurance program. PBGC terminated the “Salaried Plan,” a defined-benefit plan sponsored by Delphi by an agreement between PBGC and Delphi pursuant to 29 U.S.C. 1342(c). Delphi had filed a voluntary Chapter 11 bankruptcy petition and had stopped making contributions to the plan. The district court rejected challenges by retirees affected by the termination.The Sixth Circuit affirmed. Subsection 1342(c) permits termination of distressed pension plans by agreement between PBGC and the plan administrator without court adjudication. Rejecting a due process argument, the court stated that the retirees have not demonstrated that they have a property interest in the full amount of their vested, but unfunded, pension benefits. PBGC’s decision to terminate the Salaried Plan was not arbitrary and capricious. View "Black v. Pension Benefit Guaranty Corp." on Justia Law

The Harrises filed a voluntary Chapter 13 bankruptcy petition. The bankruptcy court issued an automatic stay. The Harrises’ neighbors, the Cooleys, subsequently filed a lawsuit, seeking removal of an encroaching fence. While the state court case remained pending, the Harrises filed an adversary proceeding against the Cooleys, alleging violation of the bankruptcy court order by filing the state court complaint and that the Cooleys “continue to pursue to take control of" property of the bankruptcy estate (the fence) to which, the Harrises alleged, they were entitled by adverse possession.The bankruptcy court dismissed the Harrises’ adversary proceeding on abstention grounds. The district court and Sixth Circuit affirmed. The bankruptcy court did not abuse its discretion: the adverse possession claim is governed by state law, and in Ohio, such a claim is “disfavored.” The property at issue is not a part of the bankruptcy estate and the disposition of the Harrises’ adverse possession claim will not impact the administration of the bankruptcy proceeding. Rejecting an argument that the Cooleys knowingly violated the bankruptcy court order, the court noted that they are not creditors of the bankruptcy estate and the Harrises do not allege that they were injured by the state court action. The automatic stay provision provides that only “an individual injured by any willful violation of a stay” may recover damages, 11 U.S.C. 362(k)(1). View "In re Harris" on Justia Law

Davis sought relief under Chapter 13 of the Bankruptcy Code. She had fewer than $39,000 in assets but more than $200,000 in debt--more than $189,000 was unsecured. Chapter 13 allows Davis to satisfy her unsecured debts by paying all her disposable income to her unsecured creditors during a 60-month period, 11 U.S.C. 1325(b)(1)(B). Davis proposed to pay her unsecured creditors a total of $19,380—60 monthly payments of $323. To obtain court approval, her plan needed to provide for payment of all her “projected disposable income” to her unsecured creditors. Although she reported gross monthly income of $5,627, Davis claimed $5,304 in allowable monthly expenses, including a $220.66 monthly 401(k) retirement contribution withheld from her monthly wages. The bankruptcy court concluded that wages withheld as voluntary 401(k) contributions are considered disposable income, even if the debtor began making those contributions before bankruptcy. Davis filed an amended bankruptcy plan that would pay her unsecured creditors $519 each month. The bankruptcy court confirmed the amended plan over Davis’s objection. The Seventh Circuit vacated and remanded. The statutory text excludes voluntary retirement contributions from disposable income View "In re: Davis" on Justia Law

In 2010, Hill, a principal of Meridian and the other principals sold Meridian to CMCO; the former Meridian principals were to work for CMCO. In 2012, Hill accepted employment with CMCO’s competitor, Peoples. CMCO filed suit, alleging that he breached his contract and shared trade secrets. CMCO settled its claims against Peoples. Hill proceeded pro se. Hill failed to attend a pretrial conference. The state court granted a default judgment. Hill also declined to appear for the damages trial. Hill asserts that he never received the order scheduling a pretrial conference but admits that he was initially aware of the date. Hill further acknowledged that he knew of the trial date because he spoke with the judge by phone and was warned that if he did not appear “adverse things [were] likely [to] happen.” He contends that a bankruptcy attorney he was consulting advised him that he need not participate because any judgments would “go away” in bankruptcy. The court granted CMCO judgment, finding Hill’s actions willful, intentional, in bad faith, egregious, and done with malice. The court awarded $3,417,477.Hill then filed his Chapter 7 bankruptcy petition. The bankruptcy court lifted the automatic stay, 11 U.S.C. 362(d), with respect to CMCO’s judgment.CMCO filed an adversary proceeding. The court found the damages judgment nondischargeable, 11 U.S.C. 523(a)(2)(A), (a)(4), (a)(6), applying collateral estoppel based on the state court finding that Hill’s actions caused “willful and malicious injury.” Hill unsuccessfully sought to vacate the state court judgment. The district and Sixth Circuit affirmed the bankruptcy court’s grant of summary judgment to CMCO. ” The state court damages judgment provided preclusive effect to the determination of the nondischargeability of Hill’s debt. View "In re: Hill" on Justia Law

David and his parents, Don and Martha, were named as defendants in an unfair competition lawsuit brought by MarketGraphics, a company with which Don had previously been associated. Before MarketGraphics could proceed to judgment, Don and Martha filed for Chapter 7 bankruptcy. When MarketGraphics obtained a judgment against David, he filed his own Chapter 7 proceedings. The MarketGraphics judgment included findings that the defendants “willfully or knowingly” violated the Tennessee Consumer Protection Act, willfully infringed upon MarketGraphics’s copyrighted works, acted in concert with Don to violate Don’s non-compete agreement with MarketGraphics, and wrongfully impaired goodwill among Memphis customers.In David’s bankruptcy proceeding, MarketGraphics initiated adversary proceedings, asserting that its claim should be exempted from discharge under 11 U.S.C. 523(a)(6), which prevents a debtor from discharging claims for injuries he willfully and maliciously caused. The bankruptcy court denied MarketGraphics’s request. The Sixth Circuit affirmed. Nothing in the record of these proceedings or the proceedings for the underlying judgment supports a finding that David acted with the requisite intent under section 523(a)(6) to harm MarketGraphics. The court rejected MarketGraphics’s contention that it was precluded from reviewing that issue in the first instance. Even assuming that the common law claims facially demonstrate “willful and malicious” injury, the underlying judgment is too vague to carry preclusive effect. View "MarketGraphics Research Group, Inc. v. Berge" on Justia Law

In 2005, Studio entered into a commercial lease with LFLP. The debtor signed the lease as Studio's president and signed a separate personal guaranty. In 2008, the debtor filed a Chapter 7 petition, listing LFLP as a creditor; LFLP received notice of the filing and of the discharge. In 2011, the debtor, on behalf of Studio, exercised a five-year lease extension option. Studio vacated the premises before the end of the extended term. LFLP sued in Ohio state court, based on the personal guaranty. The debtor included “Discharge in Bankruptcy” as an affirmative defense. The bankruptcy court reopened the bankruptcy; the debtor filed this adversary proceeding, asserting that the personal guaranty was discharged and that LFLP willfully violated the discharge injunction by filing the state court action. The defendants argued that the lease extension resurrected the personal guaranty and that the original lease and the extension contained a survivability clause that superseded the bankruptcy.The bankruptcy court concluded that the 2008 discharge meant that the debtor was no longer liable under the Guaranty and that filing and continuing the state court action were willful violations of the discharge injunction. The Sixth Circuit Bankruptcy Appellate Panel affirmed in part. A pre-petition personal guaranty is a contingent debt that is discharged in bankruptcy. The court reversed the holding that the defendants willfully violated the discharge injunction and an award of damages in light of the Supreme Court’s 2019 Taggert decision. View "In re: Orlandi" on Justia Law

Attorney Boland was a technology expert for defendants charged with possessing child pornography. Boland started with innocuous online stock photographs of young girls (Doe and Roe) and manipulated the photographs on his computer to create images of the girls engaged in sex acts, to support arguments that it was possible the pornography his clients downloaded was also doctored. An Oklahoma federal prosecutor claimed that the exhibits were actionable. The judge told Boland to delete the images. Boland instead shipped his computer to Ohio and continued using the exhibits in court although 18 U.S.C. 2256(8)(C) defines “child pornography” as any image which is morphed to make it appear that a real minor is engaging in sexually explicit conduct. Ohio federal prosecutors offered Boland pre-trial diversion in lieu of prosecution; Boland admitted he violated federal law. Federal prosecutors identified the girls and told their parents what Boland had done. They sued Boland under 18 U.S.C. 2255, which provides minimum damages of $150,000 to child pornography victims. They won a combined $300,000 judgment. Boland filed for Chapter 7 bankruptcy. The Sixth Circuit reversed the discharge of the debt, citing 11 U.S.C. 523(a)(6). The debt arose from “willful and malicious injury by the debtor.” The court rejected Boland’s “implausible pleas of ignorance.” The act itself is the injury. Doe and Roe had to prove only that Boland knew he was dealing with child pornography and knew the girls' images depicted real minors. View "In re: Boland" on Justia Law

FES distributes electricity, buying it from its fossil-fuel and nuclear electricity-generating subsidiaries. FES and a subsidiary filed Chapter 11 bankruptcy. The bankruptcy court enjoined the Federal Energy Regulatory Commission (FERC) from interfering with its plan to reject certain electricity-purchase contracts that FERC had previously approved under the Federal Power Act, 16 U.S.C. 791a or the Public Utilities Regulatory Policies Act, 16 U.S.C. 2601, applying the ordinary business-judgment rule and finding that the contracts were financially burdensome to FES. The counterparties were rendered unsecured creditors to the bankruptcy estate. The Sixth Circuit agreed that the bankruptcy court has jurisdiction to decide whether FES may reject the contracts, but held that the injunction was overly broad (beyond its jurisdiction) and that its standard for deciding rejection was too limited. The public necessity of available and functional bankruptcy relief is generally superior to the necessity of FERC’s having complete or exclusive authority to regulate energy contracts and markets. The bankruptcy court exceeded its authority by enjoining FERC from “initiating or continuing any proceeding” or “interfer[ing] with [its] exclusive jurisdiction,” given that it did not have exclusive jurisdiction. On remand, the bankruptcy court must reconsider and decide the impact of the rejection of these contracts on the public interest—including the consequential impact on consumers and any tangential contract provisions concerning such things as decommissioning, environmental management, and future pension obligations—to ensure that the “equities balance in favor of rejecting the contracts.” View "In re: FirstEnergy Solutions Corp." on Justia Law